Energy investment 'misaligned' between gas and renewables, IEA says

The International Energy Agency has warned global energy spending is 'misaligned' and investors have not spent enough on oil and gas to support power demands or renewables in order to reach Paris climate targets.

The latest IEA World Energy Investment report said a lack of energy policy from governments around the world had created uncertainty in the market and stalled investment. It called for a "step-change in policy focus".

The IEA says investment in renewable generation needs to double to put the world on track to meet the Paris climate change targets.

"Today's investment trends are misaligned with where the world appears to be heading," the report said.

"Investment activity in low-carbon supply and demand is stalling, in part due to insufficient policy to address persistent risks."

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It said global energy investments have levelled at about $US1.8 trillion after three successive years of decline, while low-carbon investments accounted for about a third of capital invested.

The bottom line is that the world is not investing enough in traditional elements of supply to maintain today’s consumption patterns, nor is it investing enough in cleaner energy technologies to change course.

IEA executive director Dr Fatih Birol

The report said there would need to be a doubling of investment in renewable energy, as well as nuclear power, to hit Paris agreement targets.

"[However,] there are few signs of a major reallocation of the capital required to bring investment in line with the Paris agreement."

It added that "robust demand" growth for oil and gas, which is backing intermittent renewable energy, also required more investment in gas-fired power.

The IEA also noted that while investment in coal had increased by 2 per cent to $US80 billion, driven mostly by China, India and Australia, shareholders activists were pushing investors away.

"The divestment movement - where investors allocate capital away from the coal sector is gaining steam," the IEA said.

It said QBE, Japanese trading companies and China's State Development and Investment Corporation have all reduced their investment exposure to coal.

IEA executive director Fatih Birol said governments needed to develop policies that created more certainty for the market, otherwise, investors would remain in limbo.

"Current market and policy signals are not incentivising the major reallocation of capital to low-carbon power and efficiency that would align with a sustainable energy future," Dr Birol said.

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"There is a growing possibility that investment in fuel supply will also fall short of what is needed to meet sustainable development goals.

"The bottom line is that the world is not investing enough in traditional elements of supply to maintain today’s consumption patterns, nor is it investing enough in cleaner energy technologies to change course. Whichever way you look, we are storing up risks for the future."

He said there was a need for "bolder decisions to make the energy system more sustainable".

Dr Birol said responsibility laid with governments to develop effective policy that combined energy and emissions to create certainty around investment.

“Government leadership is critical to reduce risks for investors in the emerging sectors that urgently need more capital to get the world on the right track," Dr Birol said.

There was an expected investment of around $20 billion in renewables in Australia in 2018 and 2019.

"Based on our analysis of projects that are currently ongoing, have been funded or are likely to be funded, we estimate that that construction work done on renewable energy projects will fall back by close to 50 per cent in the 2020 financial year and drop a further 40 per cent in 2021," the report's author BIS Oxford Economics chief economist Sarah Hunter told the Sydney Morning Herald and The Age earlier this year.